Stock Valuation help

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calc
calc Registered Posts: 18 New contributor 🐸
in AAT Level 3 (Level 6 in Scotland)
At the year-end a business valued its inventory at cost of £106,800. However, since the valuation was carried out the following matters have come to light, this means that the original inventory valuation may need to be amended:
  • One item of inventory is damaged. The item cost £1,000, repairs costing £250 are necessary to get the item into a saleable condition. The item will then be sold in a ‘clearance’ sale for £750.
  • One item of inventory which cost the business £500 is now obsolete and is to be scrapped.
  • There are 10 items of inventory, the packaging on which has become damaged. The items cost the business £60 each, but they now have to be repackaged; the repackaging will cost £5 per item. The items will then be sold at £100 each.
Based on the information provided above which one of the following figures represents the amended inventory valuation?

Can you tell me how to tackle this question?

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  • CeeJaySix
    CeeJaySix Registered Posts: 645
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    Stock should be valued at the lower of cost and net realisable value. NRV is the expected return on sale of the goods less costs to get those goods to a saleable condition. So for example in your first point, the cost is £1000; the NRV is £750 (return on sale) less £250 (cost to get to saleable condition) = £500. The item should therefore be valued at £500, meaning an overall reduction of £500 in the value of inventory (as it is currently included at £1000).

    Does that help? On that basis, can you see what the other two items should be valued at?
  • calc
    calc Registered Posts: 18 New contributor 🐸
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    Thank you! :-)

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